Story Stock – 10/04/2001

TMP Worldwide (TMPW) 32.07 +1.72: With the Nasdaq up big over the past week, investors are actively searching for that diamond in the rough — a company that has seen its stock destroyed in recent months, despite a strong underlying business… One such name worth looking into is TMP Worldwide… While many of you might not recognize the company at first, most of you have probably heard of its popular Internet career portal, Monster.com… In relatively short order management has turned company into the world’s leading career website, with over 20 international sites… TMPW is also one of the largest Yellow Pages advertising agency, one of the world’s largest Executive Search & Executive Selection agencies and a provider of direct marketing services… Now that you know a little bit about who they are and what they do, how about we turn our attention to performance… As far as the stock is concerned, prior to today, the performance has been miserable… In fact, TMPW fell to a new 52-wk low earlier this week after company issued a profit-warning… Management noted that business came to a standstill after the terrorist attacks and, as a result, Q3 and Q4 earnings estimates were knocked down considerably… Nevertheless, it is important to note that even after the warning, TMPW sees full year 2001 earnings at $1.08 to $1.12, or 16% to 20% above year-ago gain… In light of the current macro trends, that performance ain’t all bad… Especially when you consider that management sees a return to strong growth trend in the following year… Company put FY02 earnings in a range of $1.55 to $1.65 per share; well below the prior consensus estimate of $1.81, but a robust 38%- to-47% improvement over projected FY01 results… Management also wasting no time cutting back expenses to reflect softer environment, as firm to trim 10% of its Monster.com staff… Operating efficiencies should continue to improve in the year ahead, as company also starts to benefit from merger-related synergies… While on the topic of mergers, acquisition of HotJobs.com, if approved, will cement company’s leadership position in the marketplace… Given its leadership position, growing brand awareness, expanded international reach, strong double-digit earnings growth potential and improving balance sheet, TMPW should help pace any sector recovery. — Robert Walberg, Briefing.com

Nextel (NXTL) 9.18 +1.82: Nextel’s announcement this morning that it will pursue an upgrade of its existing iDEN network was one of those cases where the real news was what they didn’t say. Nextel’s upgrade of its existing network was the outcome of an either/or decision. Either Nextel would upgrade its existing network or build a 3G network. Up until today’s announcement, the assumption was that Nextel would spend billions to build a 1xRTT, 3G network. 1xRTT is the 1st phase of the 3G (third generation) CDMA2000 standard. The implicit decision announced this morning was that Nextel would not opt for the CDMA2000 network. This has implications for Nextel, Qualcomm (QCOM, which owns the patents on CDMA2000), and indeed the entire wireless world. For Nextel, this decision means huge cost-savings; Bear Stearns had expected up to $5 bln in costs associated with the 1xRTT build in 2002/03. Nextel opted for the cheaper route, which will help it get to cash flow positive without further funding, hence the positive stock reaction today. For Qualcomm, this is not exactly a lost customer, since Nextel had never formally decided upon the 1xRTT standard and analysts had not assumed any benefit from a Nextel contract as a result. But there is a broader issue here that is highly relevant to QCOM and others. Will customers pay for 3G? That’s the key question facing the entire wireless industry. Service providers face huge costs to implement 3G, but they have virtually no idea what revenue upside 3G offers. Nextel clearly decided that they stood more to gain in cost savings than they stood to lose in lost revenue potential. In other words, they didn’t believe that customers would pay enough for 3G to justify the cost. Admittedly, their decision was influenced by a balance sheet which was not as sound as those of their competitors. The decision should nevertheless make investors confront this question before investing blindly in QCOM or any wireless stock based on a 3G investment thesis. Thus far, 3G is more a concept than a profitable reality. The technology will work, and it will be cool, but that’s never been enough to justify an investment. Will people pay for 3G? How much? Will it justify the cost to providers of implementation? To date, consumers have demanded better voice quality and, to a lesser extent, short-text messaging, neither of which require 3G. Do they want to browse the web on their cellphones? Will they pay for it? Nextel placed its bet. Don’t place yours without answering those questions. – Greg Jones, Briefing.com

Chart Watch : After spending more than a week drifting within a narrowing trading range the Nasdaq Composite staged an impressive breakout yesterday amid improved volume and has put together a solid extension today (also accompanied by heavy volume). From an intraday perspective the market is somewhat overextended but this is to be expected given the better than 11% surge off Wednesday’s low. For today, as long as the index is able to hold above the 1620/1615 area it will be in position for another upside extension.

Andrx (ADRX) 67.55 -7.52: We have been following this generic drugmaker for a while now, so it’s worth giving an update as the stock is down 10% today. The company said that the FDA has, for the first time, advised Andrx that final marketing approval of Andrx’s ANDA for a generic version of Prilosec may be delayed. Prilosec, which is owned by AstraZeneca (AZN), is the largest selling drug in the US with $6 bln in sales. AZN’s main patent for Prilosec expires on Friday, but AZN has sued a number of generic drug makers to delay their launches of competing drugs. In it press release, ADRX, says AZN is now suggesting by innuendo to the FDA that certain concerns may exist with regard to generic products, but not to their own. Andrx is confident that the FDA will quickly see through these latest “smokescreens.” …This is clearly not good news for ADRX. The company will be able to launch their drug, but now the timing becomes more uncertain. Hopes had been for Q2 2002, but that appears to be in jeopardy. The focus now shifts back to the litigation . Earlier this week, the Florida district court transferred the Andrx Prilosec case back to New York for trial. The next step is the final transfer of the last defendant case (Cheminor) to New York and then the scheduling of a trial date. Once all the defendants are in NY, we can finally get a trial date. Goldman Sachs says both could occur in the next few weeks allowing a trial to be underway by late October/early November. A trial could be resolved in 6-8 weeks, which would have left ample time for a launch of Andrx’s generic Prilosec in 2Q02…Well, that’s the play-by-play. ADRX shareholders should be confident their day will come, it just may get pushed out a bit. Also, ADRX became a member of the Nasdaq 100 Index this morning. — Robert J. Reid, Briefing.com

Dell Computer (DELL) 22.34 +1.70: So maybe the sky isn’t falling. This morning, Dell Computer reaffirmed its prior guidance for the quarter contributing to an early lift for the Nasdaq. The company sees third quarter earnings in the range of $0.15-0.16 per share revenues in the range of $7.2-7.6 billion — the current consensus estimates are at earnings of $0.15 per share and $7.29 billion in revenues. Prior to the attacks, Dell had expected industry units to be flat to down 5% and industry revenues down 5%-10%. The company now expects industry unit sales to come in lighter than previously expected. CEO Michael Dell said while conditions in the computer-systems industry remain difficult, the company’s strategic, operating and financial position “is better than it’s ever been.” In addition, the company expects to make further share gains in all product categories, customer segments and regional markets during the current quarter. Back in early September, industry data indicated PC pricing was aggressive going into the back-to-school season — both desktops and notebooks were off roughly 2% in the month’s first week. Server pricing had been even more aggressive, off approximately 5%, as both Dell and Compaq lowered ASP’s. This morning, management acknowledged industry pricing remains competitive, but noted it has not dropped outside the range of its prior expectations. The company said CIO’s are putting off big ticket purchases until next year, but added more than half of CIO’s expect a recovery in 2002. Until that recovery materializes, Dell management says its winning share at the fastest rate in its history and revenue per employee is at its highest level in two years. All in all, this morning’s conference call highlights the value of removing near-term uncertainty from the market. There is no question both Dell and the industry face challenges over the near to intermediate term. The question is whether those challenges have been disproportionately priced into the market at its recent lows. Dell’s third quarter ends November 2 — the company plans to announce full results for the period, and offer guidance for fourth-quarter performance, on November 15. — Michael Ashbaugh, Briefing.com

Stocks to Watch : Futures are pointing to a higher open in large part due to Dell Computer’s (DELL 22.60) reaffirmation of Q3 guidance. Call just getting started. Watch InPlay for updates….After Cisco (CSCO 13.95) made positive comments yesterday, CSFB and Morgan Stanley raise numbers…Juniper Networks (JNPR 12.00) benefitting from a Morgan Stanley upgrade to Outperform from Neutral with a $16 target citing increased confidence in customer base and long-term prospects….Generic drugmaker Andrx (ADRX 75.07) is down almost $4 in the pre-market on news that the FDA delay its key generic version of Prilosec, the largest selling US drug. AstraZeneca (AZN 46.89) owns Prilosec and should benefit by this news….Oil prices have spiked in recent action, up $0.66 to $23.10/bbl on trading floor rumors of an emergency OPEC meeting. Although Bloomberg is reporting that OPEC has already issued a denial that there is any such meeting….EDS (EDS 59.34) announces that it commenced a $500 mln 20-year convertible note offering….Not surprisingly, Corning Inc (GLW 9.00) announces a $1 bln restructuring plan and warns for Q3…S&P 500 futures are trading 11.6 pts above fair value while Nas 100 PMI is +17. — Robert J. Reid, Briefing.com